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Knee deep in confusion

Nevertheless, it prompts interesting thoughts: when does virtue signalling have purpose and what does this have to do with investing in equities? Quite a lot actually, since it’s as obvious as Jurgen Klopp’s glistening teeth that listed companies are also obsessed with signalling their virtue.

Studies of evolutionary biology tell us that virtue-signalling only has meaning if it comes with a cost. In a phrase: no cost, no virtue. This so-called ‘handicap principle’ takes the peafowl as its ultimate example. The male, the peacock, displays its virtue via its magnificent fan. What, in the wide eyes of an impressionable peahen, could be sexier? So, as a reward for its virtue, the peacock gets lots of sex. But the cost is that its ridiculously impractical tail means it can barely fly, making it an easy takeaway dinner for predators.

In human activity, the handicap principle reveals itself in the trade-off between, say, a long and expensive education and a top job afterwards. Why else spend all those dreary years in post-graduate study other than to signal the virtue of eligibility to work with the ‘quants’ at Goldman Sachs? Similarly, why else do the rich buy pointlessly expensive goods, such as Mulberry handbags or Rolls-Royce cars, other than to advertise that they have money to waste.

Back in the sporting sphere, when Tommie Smith made his thrilling black-fisted salute on the winners’ podium at the 1968 Mexico Olympics, his virtue signal was real – it came with the likelihood of a wrecked career. Less likely was that Colin Kaepernick faced a similar risk when he took the original knee during 2016’s National Football League season in the US. True, in the midst of the praise and vilification Mr Kaepernick received for his protest, he pledged $1m to favoured causes. But he already had an endorsement contract with sports goods supplier Nike (US:NKE) and, during 2018, he signed a more lucrative one.

So what do we make of the marketing slogan with which Nike launched its new deal with Mr Kaepernick – “Believe in something. Even if it means sacrificing everything”? Ostensibly, it sounds like cynicism on steroids. If Mr Kaepernick had sacrificed little, Nike seemed to be sacrificing less but was quite happy to cash in on the illusion of its virtue.

Actually, the truth is more nuanced. Recall that Nike is the company that wanted to imitate Prince – the singer, not the sports-goods maker – and change its name to a symbol. In other words, the company is as much about pedalling an image of itself as it is about selling spiked running shoes and T shirts. The message is an integral part of the brand. So when Nike signals its right-on virtue to the kids who buy its stuff, it is defining its brand, but that comes with the risk of offending other customers and – perhaps more likely – its shareholders, who may be older and more conservative. That’s the price of its virtue.

Indeed, the Kaepernick affair did extract a cost. In the six weeks after announcing its deal with Mr Kaepernick, Nike’s share price dropped 15 per cent, costing the company over $20bn in stock market value as disgruntled customers went through the ritual of burning their Nike shoes or cutting out the brand-defining ‘swoosh’ from their clothing. In the end, however, business usually wins out. Nike’s surge in sales following the deal meant that six months later the stock price had bounced 30 per cent to new highs.

No such fury and indignation this week as the Anglo-Australian miner Rio Tinto (RIO) confessed its error in destroying a sacred aboriginal site at Juukan Gorge in its vast Pilbara mining complex in Western Australia. Rio destroyed the site in May, since when its share price has risen over 25 per cent. Granted, other factors have been at work, but the share price response indicates something about the public’s perception of mining companies. Because mining is a nasty, dirty business that wrecks the environment and people’s lives in equal measure, the public assumes commensurate behaviour from mining companies. When companies appear to fit that norm, there is no widespread horror – that’s what these companies do, what else do you expect?

Obviously, I caricature. Rio most likely takes its responsibilities seriously. But it comes up against an embedded perception, a consequence of which is that it has little virtue to signal and therefore there is no cost to protect it. Or, alternatively, the cost has already been paid. It is revealed in the low rating attached to its shares. Rio’s shares are rated at about nine times forecast earnings compared with 45 times at Nike.

Sometime in the autumn Rio will complete its investigation into the Juukan Gorge incident, will confess its sin, perform obeisance and pay money to an aboriginal cause. It won’t make a scrap of difference either to the public perception of the group or its share price. When a company signals its virtue, it is the reputation it has that matters, not the reputation it wants to have. If only England’s Premier League could grasp that.